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Aug. 3 — Prescription drugs are less responsible for the large 2017 premium increases that
have been requested for Affordable Care Act health plans than many people may believe.

There has been considerable denunciation of the pharmaceutical industry for high prices,
especially for specialty drugs, but an
analysis Avalere Health released Aug. 2 found that drug prices were only responsible for about
14 percent of health insurers' premium justifications for 2017 even though drugs were
responsible for nearly 18 percent of claims in 2015. Normally insurers' claims experience
governs their premium requests in future years, Avalere Senior Vice President Elizabeth
Carpenter told Bloomberg BNA Aug. 3.

“There's been a lot of discussion about premium drivers,” Carpenter said. “This shows
it's important to look across services and settings of care when thinking about what
is driving premium increases.” The analysis found that outpatient spending is expected
to be the largest driver of premium increases in 2017, accounting for about 30 percent
of 2017 rate increase requests.

Professional Services

The analysis of proposed rate filings from nine states found that in addition to outpatient
services, insurers also expect professional services to account for nearly 28 percent
of claims in 2017. Costs for inpatient care appear to be leveling off and are only
expected to contribute 15.4 percent to 2017 premium increases despite being 19.6 percent
of spending in 2015.

The numbers vary by state and by plan, Carpenter said. Avalere represents clients
across different segments of the health-care industry, including drug manufacturers,
she said.

Among the states analyzed, drugs accounted for a higher portion of premium increases
than their share of spending in five states and they made up a smaller percentage
of premium increases than their share of spending in four states, the analysis said.
The states studied were Connecticut, Maryland, Maine, Ohio, Oregon, Rhode Island,
Virginia, Vermont and Washington.

Drug Prices `Baked In.'

While Avalere emphasized that drug prices are expected to make up a smaller share
of 2017 premium increases than their share of 2015 expenditures, other health-care
analysts told Bloomberg BNA that big drug increases in recent years are already a
part of higher premiums.

Claim costs for 2015 and 2016 “already reflect the increase in drug costs”
for insurers, Michael Taggart, a consulting actuary for actuarial firm Milliman Inc.,
told Bloomberg BNA Aug. 3. “They're not going to assume that there's another year
with percentage increases as big,” he said. “It's already baked in to their starting
numbers.”

Taggart is a consultant to Standard & Poor's Global, which released a
report in May finding that 2015 was the second consecutive year of “significantly increasing
drug costs.”

Specialty Drugs

The biggest factor in rising pharmaceutical costs are specialty drugs, such as Gilead
Sciences Inc.'s Harvoni, which has proved to be a cure for about 90 percent of hepatitis
C patients who have been treated with it, Taggart said. The list price for the drug
was about $84,000 for a typical 12-week course of treatment when it was introduced
in 2014.

“The magnitude of those increases and the fact that they will be used pretty rapidly
made a huge impact on the total amount of spending on drugs”
in recent years, Taggart said.

In addition, Taggart said, insurers have been able to aggressively negotiate lower
prices with doctors and hospitals, but they have not been able to do so as easily
with manufacturers of drugs that now cure diseases such as hepatitis C. “That's a
totally different way to deal with that illness than we ever had before,” he said.
“There's very little negotiating.”

No Single Element Driving Increases

“There isn't any single element of health care driving the increases projected,” Benjamin
Sommers, assistant professor of health policy and economics at the Harvard T.H. Chan
School of Public Health, told Bloomberg BNA Aug. 3.

Sommers emphasized that the premiums requested for 2017 may not be approved by state
regulators, and negotiations may result in lower rates. In addition, he said, more
than 80 percent of people buying plans in the ACA marketplaces receive subsidies from
the government to help them cover the cost.

Large premium increases were forecast for 2015 and 2016 following the opening of the
marketplaces in 2014, but “those dire predictions haven't played out for most consumers,”
Sommers said.

To contact the reporter on this story: Sara Hansard in Washington at
shansard@bna.com

To contact the editor responsible for this story: Kendra Casey Plank at
kcasey@bna.com

For More Information

Avalere's “Outpatient Services Are the Largest Driver of 2017 Premium Increases” is
at
http://src.bna.com/hpW.

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